Saturday, October 30, 2010

Obama's Redistribution of Wealth Debacle

I get routine comments from my children that my blog posts are "just too long."  I know I violate all the nebulous "blog standards" and all the conventional wisdom that posts should be 250 - 500 words.  So here's some relief. . .  This won't take long.

Test question for today:  What's the best way to create more jobs?

This administration has a signature legislative achievement -- the healthcare reform bill, dubbed "Obamacare." The intent was to subsidize health insurance for low- and middle-income groups by taxing high-income earners.  Big problem -- it might level material wealth but it sure dampens economic growth.  Where's the incentive to work harder?  Instead, the message sent was don't work so hard, you'll just pay more taxes.

It also kills incentive among the low- and moderate-income earners.  They can maintain the same standard of living with even less effort.  This is all strangely familiar to me.  I witnessed it in the late sixties as a missionary in England.

Do high tax rates really harm the economy? The liberal progressives (such a strange term -- they're really throwing us backward into the dark ages it seems to me) will tell you "No."  However, the countries of the European Union since the end of the World War II have tried this experiment before.  Their attempts to "carve equal slices from the economic pie" have included offering their citizens generous social benefits such as government-provided health care and mandated lengthy vacations.  France is rioting today because the government, faced with entitlements they can no longer afford, dared to raise the minimum qualification for their retirement stipend age to 62 from 60 just to keep more worker bees in the hive.  The result?  Per capita purchasing power in the EU is two-thirds of what it is in the U.S.  The slices of the economic pie may be more equal, but they are doled out from a much smaller pie.

This accompanying projection shows what happens if we don't put a swift and effective end to government entitlement programs.  They are increasingly disastrous and the increasing payments from the government to citizens are unsustainable, just as they are today in France and elsewhere in Europe.

So what does President Obama do to fend off criticism that his policies are doing harm?  He just keeps talking and talking and talking.  In his mystical never-never land, he would have us believe expanding health care coverage is going to somehow lower costs.  He gives handouts to state and local governments and calls that "stimulus spending."  Climate change legislation became a “green jobs” bill, and the list goes on and on.  If my calculations are correct (and they are), voters on November 2nd will reject him the only way they can this year -- in a tsunami wave of anger about to be unleashed on both houses of Congress.

It could have all been avoided.  Obama could have done what he said he would do -- find unanimity on policies where more could have agreed instead of being so divisive.

A glaring omission was failing to stop the massive federal subsidies to Fannie Mae and Freddie Mac.  If he had really been interested in attacking the economic collapse root causes, that would have been an obvious place to start where bi-partisan support could have been achieved.  Instead, the disastrous Dodd-Frank regulatory reform bill did neither -- it didn't regulate and it didn't reform either agency.  The ridiculously reckless low credit standards continue, and so do the taxpayer-funded subsidies.

During the boom, realtors, homebuilders, developers, mortgage lenders, securities traders, and others reaped enormous profits, then they sold short knowing the paper was bogus, and dumped their losses on taxpayers during the bust.  Private fraudulent gains resulted for which no one yet has been prosecuted.  Oh, we all took great delight in watching token figureheads like Lehman Brothers and its CEO, Richard Fuld, take it on the chin, but all that translated into was socialized losses absorbed by American citizens.  Eliminating all federal support for Fannie and Freddie would have immediately redirected equity where it could have helped most like building newer, more-efficient manufacturing facilities, creating jobs and stimulating economic growth.  As it is we're in a quadmire with foreclosures that still cannot be properly valued because of the federal government's attempts to "fix" it.

Maybe, just maybe, someone among "the smartest economists on earth" in the Obama administration could have taken a closer look at the idiocy we call the IRC, the Internal Revenue Code.  Currently, because of the permissible carve-outs, only 40 percent of personal income is taxed, pushing rates to more than twice what they need to be.  If you're going to tax the rich to provide for the poor, wouldn't it have been logical to close the holes in the sieve first to capture the income?  As it is now, everyone who can afford a smart CPA is free to game the system to lower their tax rate while others with similar income pay more.  That's inequity in its highest expression.  Companies who can afford the expensive lobbyists tend to do better than those who can't.  It's corrupt.  And the gaming continues.  If the adminstration were really interested in anything more than an audacious grab for gold, it would have considered true reform.

Close loopholes, broaden the tax base.  Simple right?  Obama and his advisors could have slashed rates, enhanced equity, and provided a huge stimulus to the economy.  Even if Congress had just written a personal check out to every American for $40,000, no strings attached, we'd be better off.  Instead, we got just the opposite -- even more loopholes and a promise to raise tax rates on the "wealthiest Americans."

I was accused last week by my good friend Marv of being too optimistic and idealistic about what might come out of the election results next Tuesday.  In his words, "You need to hear what my father once told me -- 'I'm a lot happier now that I've given up hope.'"

The problems in the economy might indeed prove to be too big to fix, but I'm still happier thinking we can make another new start.  Renewal is inspiring. 

It gives me hope, and we all need that right now.

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